Supply chain disruption has started to become ‘more acute’, Crest Nicholson said, although it is able to pass rising prices on to customers because the housing market is so strong at the moment.
For the six months to 30th April 2021 Crest Nicholson Holdings increased revenue to £324.5m (2020 H1: £240.0m), with home completions increasing to 1,0171 (2020: 775). Last year’s £51.2m half-year loss became a pre-tax profit of £36.3m.
On supply problems, chief executive Peter Truscott said: “Towards the end of the first half, we started to experience inevitable delays and shortages in labour and materials due to the fractured supply chains arising from the pandemic and lockdown restrictions. In most instances we managed this impact at a local level without any consequent disruption to operations.
“At the start of the second half this disruption started to become more acute and we are now seeing increases in lead times for product deliveries to site and a limited number of significant price increases in certain product categories where there is greatest scarcity of supply. We expect these pressures to normalise in the medium term. However, it is possible that in the short term we will see further supply pressures start to emerge. Our move to a new standardised house type range and specification, coupled with the site replans, is delivering significant sourcing benefits to help offset these increases and we would also expect the current environment of house price inflation to help mitigate any impact to earnings.”
Other big builders are less able to pass on their rising costs so easily. Willmott Dixon chief executive Rick Willmott said last month: “Spiralling demand and restricted supply could create a number of immediate pressures in our sector, including: rampant cost inflation in a generally fixed price environment will quickly erode supply chain margin; unavailability of materials will delay project completions; capital projects may no longer be financially viable leading to a hiatus in contract awards.”
Crest Nicholson also has a problem of legacy cladding to address. Its half-year accounts show more money being set aside to cover the costs of replacing flammable cladding on its developments.
Peter Truscott said: “We recognise the review of building materials related to fire risks continues to evolve with changes to Building Regulations and Fire Safety Regulations, government guidance and the way they are interpreted. Upon joining the group in 2019, the new executive leadership team immediately conducted a detailed review of all current and legacy buildings to identify where there may be remediation requirements for combustible materials. This resulted in an exceptional charge to the income statement of £18.4m in FY19. This charge covered those buildings that we legally own or where a legal or constructive obligation to remedy the building was deemed to exist.
“The group continues to conduct a detailed periodic review of all ongoing remediation works including the assessment of costs to complete. As the year has progressed, within this changing and complex environment, we have reassessed the estimates of costs and likely duration of works. This has resulted in a £7.9m net exceptional charge to the income statement.”
The net amount comprises a charge of £10.3m and a credit of £2.4m from settlements of claims against architects and subcontractors.
Shortages and fire risks notwithstanding, Peter Truscott said that his turnaround plans were going splendidly, and he has plans for expansion.
“Our balance sheet has been transformed and positions us strongly to grow in the future,” he said. “Having completed the first part of our turnaround strategy, and implemented our operational efficiency programme, our focus now moves to rebuilding operating margins and delivering sustainable growth. We are evaluating options to enter new geographical markets and look forward to outlining these future growth plans and our long-term financial targets later this year."
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